Corporate Innovation Requires Customization

There is no “one size fits all” approach to adaptation

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I’m fascinated with LEGO. Partially because it’s a fun reminder of my youth, and also because the toys can be used as a tool to help corporate executives be more creative. The company has even developed a process called LEGO Serious Play to enhance innovation and business performance.

My 4-year old kids love to play with LEGO, and I love to play with them. I’ve noticed that when I give my daughter a new set, she always says the same thing, “first, let’s make what I want to make.” Eventually, she might ask me to follow the instructions and build what’s envisioned in the set. Once I do, she usually wants to take it apart and build something new.

The plot of The LEGO Movie suggests this must be a universal experience. Parents, satirized perfectly by Will Ferrell as Lord Business, want to follow the step-by-step instructions and preserve the results. Kids want to play and don’t see the limitations of what’s on the cover of the box or in the booklet. All of this provides a lesson that playing with LEGO (and kids) takes an open mind.

Corporate innovation professionals should take note of this dynamic and mix rigor with a customized, flexible approach.

I’ve written about the potential benefits of benchmarking against best practices and professionalizing your innovation program, but there are limits to how formulaic these practices can be. It’s not like a recipe for baking a cake. Designing and running a corporate innovation program requires an open mind, a willingness to adapt the efforts to the needs of the parent company, and the flexibility to make ongoing changes as needed.

Benchmarking can be used by established corporate innovation executives as a “tune up,” to ensure the program is running properly. It’s also a good tool to set up innovation programs properly from the beginning. A good benchmarking process begins by assessing whether the program is designed to achieve the strategic goals of the corporation. This requires understanding the circumstances and goals of the corporation. But because every corporation’s circumstances are unique, everything should be customized from that point forward.

Here are a few questions to help assess the ways in which every corporation’s circumstances are different:

Competitive dynamics — Are there a fixed number of dominant players in the corporation’s competitive set? Are competitors relatively friendly or do fierce rivalries exist? Have disruptive startups already entered the market?

Market leadership & trajectory — Is the corporation viewed as a leader or a follower? Is it on its way up, treading water, or struggling to maintain its standing in the marketplace?

Capital position — Is sufficient cash available on the balance sheet to acquire or invest in external innovations? How are the business owners thinking about overall liquidity?

Risk profile — Does the company’s culture encourage, tolerate, or punish experiments and failure? Are results measured on a short-term or long-term time frame? Do managers value quarterly earnings, legacies, or both?

Internal politics — Who holds power within the organization? How are decisions made? Who can approve an investment, acquisition, or commercial relationship with an external innovator?

As an example, the traditional movie studio industry consisted of six stable “majors” for decades, with Disney, Fox, Universal, Warner Bros., Sony, and Paramount. The entrance of Netflix and Amazon as independent content producers changed everything in this competitive dynamic, however. Suddenly, major studios viewed Netflix as a common enemy.

But even within the common competitive lens of the majors, each company has its own circumstances. Disney and Warner Bros. are market share leaders, owning or controlling many examples of marquee intellectual property including Marvel, Star Wars, Harry Potter, DC, and many more.

While 21st Century Fox was healthy as part of the overall News Corp conglomerate, the Murdoch family seized the opportunity to combine with Disney as a way to achieve further liquidity and to compete with disruptive entrants like Netflix. Similarly, Time Warner, the owner of Warner Bros., has embraced an acquisition by AT&T.

Comcast, the corporate parent of Universal, has long encouraged rational risk-taking to explore potential new businesses. Not surprisingly, the company maintains one of the longest tenured corporate venture capital programs, Comcast Ventures, as a testament to its risk tolerance and long term view. The program was originally started as Comcast Interactive Capital in the late 1990s, and combined with Peacock Equity to incorporate the needs and resources of its NBC Universal subsidiary.

Internal politics, of course, also depend on ownership structure. If the corporation is part of a larger business, as is the case with each of these movie studios, then what is the culture of the overall owner? For example, Sony Pictures Entertainment (“SPE” is the movie studio) is owned by Sony Corporation, which is a Japanese conglomerate. Decision making structures for innovation at SPE require addressing the reality that the Japanese parent company has strict requirements for approving transactions. A former Sony executive told me this week that even non-binding term sheets must be formally approved in Japan.

While these major studios face common threats in the form of Netflix and Amazon, each requires a customized innovation program to address its unique circumstances. Disney and Paramount, for example, are not in the same situation, and would not rationally take the same exact approach to innovation.

Circumstances can change quickly, and innovation programs should change accordingly, too. Corporate innovation professionals should consider updating their strategies, to ensure alignment with the overall needs of the parent company, on an annual basis at minimum.

The most essential ingredients in the process are empathy and a willingness to put aside your own ego. As a corporate innovation professional, it’s not about what deals you think are interesting, nor what strategies you personally like, nor robotically following a checklist for how to be an innovator. With an understanding of context and a company’s individual circumstances, it’s possible to design a tailored approach to create meaningful impact.

This article originally appeared on Forbes.

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Scott Lenet is President of Touchdown Ventures, a Registered Investment Adviser that provides “Venture Capital as a Service” to help corporations launch and manage their investment programs.

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